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HMRC internal manual

Stamp Duty Land Tax Manual

Scope: What is chargeable: Options and rights of pre-emption FA03/S46

An option to buy land is a binding right granted by a landowner on receipt of a fee giving a prospective buyer an entitlement to purchase up until a specified date in return for a fee.

Pre-emption rights are commonly known as rights of first refusal. On receipt of a fee, a pre-emption right might be granted by a landowner that prevents or restricts the landowner from entering into a land transaction with parties other than those to whom the right is granted.

A charge to Stamp Duty Land Tax (SDLT) arises on the acquisition of an option or on the acquisition of a right of pre-emption in respect of land transactions. The sale, variation or surrender of an option or pre-emption right constitute the acquisition of a chargeable interest and so are also chargeable to SDLT

Any later exercise of an option or right to pre-emption will give rise to a separate land transaction chargeable to SDLT in its own right. Although the exercise is a distinct transaction it will usually be linked to the earlier grant of the option or rights of pre-emption. There is an example of this at SDLTM01300a.

There will be some circumstances where the exercise of the option is not linked to the grant, for instance where the option has been assigned and is exercised by someone not party to or connected to a party to the original grant.

Options fall within SDLT even if the grantor can discharge his obligation either by entering into a land transaction or in some other way, e.g. payment of money.

At the time of the acquisition of the option or right SDLT is charged on the option price at the rates applicable to that price. If the grant and exercise are linked then when the option or right is subsequently exercised, SDLT is charged on the consideration given for the exercise plus the option price at the rates applicable at time of exercise. At this time, any SDLT paid, on the acquisition of the option or right, will be taken into account in determining the tax due.

The grant of an option is not the acquisition of a major interest.

Accordingly the grant of an option is not notifiable unless there is stamp duty land tax to pay, or there would be tax to pay but for the availability of a relief.

However the fact that the grant of an option is linked with its exercise will often mean that by virtue of FA03/S81A the grant becomes notifiable or the original return will nees amendment when the option is exercised.